A year ago, a trio of hurricanes left polymer markets in chaos. Today the markets are roiled by storms of a different sort – tariffs.

Since the start of 2018, the U.S. administration has imposed a series of tariffs on various countries, ostensibly aimed at protecting domestic industries, reducing trade deficits, and securing intellectual property.

The tariffs, however, have invited a slew of punishing retaliatory measures that have led to even more uncertainty for businesses, investors, and consumers alike. (Read about another cause of uncertainty here.)

Both directly and indirectly, the U.S. plastics industry will feel the effects of these trade battles. The consequences range from shifting import and export markets, to disruption in domestic end markets, to rapid and complicated price changes, to major disruptions in freight transport and material storage.

In these blog posts, we’ll take a closer look at these tariffs and how they came to be. Then we’ll delve into their many consequences on the plastics industry, with product-specific examples and multiple perspectives from M. Holland executives. We’ll finish up with a focus on important upcoming dates and events, and a recap of the trade news that has happened in the meantime.

But first, an overview:

The Tariffs

The U.S. administration’s tariffs can be divided into two major categories:

  1. Steel and Aluminum Tariffs on almost every trading partner (including China), announced periodically through the spring and summer
  2. Tariffs on China, which have escalated into a full-blown U.S.-China trade war

STEEL AND ALUMINUM

While tariffs normally require congressional approval, a special exception allows the president to unilaterally impose them when national security is at stake – the current administration’s justification for its recent steel and aluminum tariffs. When the U.S. administration first announced tariffs of 25% on steel and 10% on aluminum in March, it made many exemptions for trading partners, including the European Union, Mexico and Canada, and certain South American countries.

In the following weeks, however, these exemptions were slowly rolled back, until nearly all of the U.S.’s major trading partners were included on the list. Most of these countries then took retaliatory measures, including:

  • $3.3 billion of European duties on U.S. exports of Harley Davidson motorcycles, Levi clothes, and bourbon, among others.
  • Canadian duties of up to $16.6 billion on a wide range of U.S. products.
  • Mexican tariffs on U.S. farm products.
  • Turkey’s tariffs of 140% on U.S. alcohol, 120% on passenger vehicles and 60% on tobacco.

Regarding the plastics industry, these U.S. tariffs – and their retaliatory countermeasures – pose a significant threat to the construction boom ($200+ billion in planned investment) in new plastics manufacturing facilities, as steel and aluminum are critical components of the industry’s machinery and infrastructure.

Much of this expansion is fueled by low energy costs from North America’s abundance of natural gas and oil. Both the American Chemistry Council and the U.S. Plastics Industry Association have vehemently opposed these tariffs, arguing that they could wipe out North America’s production advantage.

CHINA

More immediate industry disruption has come from the U.S.’s trade war with China. This trade war began with the same U.S. steel and aluminum tariffs imposed on other countries, but quickly escalated over the U.S. administration’s allegations of intellectual property abuse and other unfair Chinese trade practices.

So far, the U.S. has successfully implemented 25% tariffs on $50 billion of Chinese goods, with China responding dollar-for-dollar.

THE FIRST $50 BILLION

This $50 billion in tariffs was carried out in two stages, the second of which directly affected U.S. plastics and chemicals.

Stage #1:

Implemented in early July, this stage saw tariffs of $34 billion mainly on industrial goods, including but not limited to airplane components; nuclear, marine, and mining equipment; electrical and computer parts; steel; electric motors and generators; communications equipment; and motor vehicles.

China responded dollar-for-dollar, focusing on meat products, soybeans, seafood, dairy, produce, whisky, tobacco, and automobiles.

Stage #2:

Taking effect on Aug. 23, this round of $16 billion in tariffs – which brought the total to $50 billion – marked the first inclusion of the plastics materials sector.

Between the two countries, about $4.2 billion worth of chemicals and plastics were hit with the 25% tariffs: $2 billion in U.S. exports, and $2.2 billion in Chinese exports.

The tariff lists include materials such as polypropylene, polyethylene, vinyl, fluoropolymers, acrylic, polycarbonate, and polyethylene terephthalate.

WHAT’S NEXT?

In addition to the $50 billion already imposed, the U.S. has also threatened 25% tariffs on $200 billion more of Chinese goods, with another $200 billion after that if China retaliates each time, as it has so far. If completed, such tariffs would affect nearly all Chinese exports to the U.S. ($450 billion in tariffs out of $505 billion in Chinese exports).

China’s response to this has been to threaten tariffs on a further $60 billion in U.S. goods which, if implemented, would affect 85% of U.S. exports to China.

At a recent Washington hearing, the American Chemistry Council summed up its position succinctly: “These tariffs will close off China’s market to U.S. exports just when our industry was ready to supply China’s large and growing demand for chemicals” – and just when the U.S., as noted above, is poised to take advantage of its low-cost energy situation.

In a forthcoming post, we will examine the consequences of these specific tariffs and how they are fostering disruption well beyond the U.S.-Chinese trade relationship.


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